Level off city spending now: De Blasio should pay careful attention to the tax burden in this year’s budget

January 10, 2019

Climbing too fast. (Benjamin Kanter/Mayoral Photography Office)

When an airplane faces an emergency while climbing, it is seldom forced to make an immediate descent back into an airport. Instead, its pilot “squawks 7700” to let air traffic controllers know of the urgency, then proceeds to level off the aircraft to work through the problem and recalibrate its systems.

As New York City heads into a new budget cycle this month after years of rising expenses, our pilot, Mayor de Blasio, would be serving his passengers well if he took this opportunity to squawk 7700, level off spending and recalibrate our finances.

Advertisement

Getting off the ground has been no issue for our captain. Since he took the helm, the city budget has risen over 25% to its current altitude of $90 billion, more than tripling inflation. New York’s additional $19 billion of spending since de Blasio took office, in itself, is substantially larger than the country’s second largest municipal budget: San Francisco’s paltry $11 billion.

The totality of our city budget is staggering. The Department of Sanitation alone spends more money than the government of Haiti and has more people in green than the army of Ireland. If this week’s announcement of a new $100 million health plan for all uninsured New Yorkers is any indication, it may yet still grow.

The reality is that the mayor enjoyed a tremendous growth of the city’s coffers that stemmed from the economic recovery, the city’s wage growth, its booming real estate industry and steady stock-market gains. These revenues were the jet fuel that propelled new entitlements and services, including: UPK; 3-K; Fair Fares; and a heavily subsidized ferry system. The city also doubled its spending on homeless services, and this mayor was forced to settle contracts with 150 municipal unions, which his predecessor had simply let expire.

The skies were clear for several years as city spending hurtled ever upward; but in 2019, warning lights are flickering and alarm bells hum. The good news is that more often than not, when a plane squawks 7700, the problems are manageable and a skilled pilot can continue on in safety.

The first alarm bell rings for the real estate industry, long the backbone of the City’s finances. While last year’s executive proposal acknowledged a slight slowdown in the market, it still projected a steady growth of annual property tax revenue by 6.1%. Yet as soon as the ink dried on that budget, news broke that the city had seen its worst real estate sales quarter since the financial crisis began. By year’s end, The New York Times called a slumping housing market “the new normal.”

Another alarm warns of turbulence ahead in the stock market. The City Council’s 2019 Economic and Revenue Forecast ominously warned that future Wall Street volatility would “[remove] some fuel from income tax collections.”

Of lesser concern are some warning lights off to the side of the cockpit. Revenue streams that account for smaller, but significant, percentages of the budget are projected to remain flat in the coming years. These include taxes on utilities, hotels, commercial rents and cigarettes.

The final warnings are coming directly from passengers in the cabin. They are growing sick of rising ticket prices. With the passage of the federal tax cut in late 2017, income mobility away from high-taxed jurisdictions may become more of a factor in sagging personal income tax revenue growth, which the Council forecasts will only be 0.1% this year.

We still desperately need the top 1% of earners in first class to pay 44% of the city’s income tax.

Taken individually, these are all manageable concerns. But as with all warning signs, a good pilot knows the importance of leveling off while the problems are corrected. Let’s hope de Blasio proves his mettle.